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Occupancy at 85% BUT 75% over 16 years old.

There has been many reports about the state of office occupancy in KL city centre. Most of the reports point towards oversupply. Well, six more new buildings have joined the office space scene. They are Menara Bangkok Bank, Ilham Baru Tower, Naza Tower KL City, KEN TTDI, Menara MBMR and The Crest Sultan Ismail. These towers added an additional 2.1 million sf into the KL city office space. So, would these be making the oversupply even worse? According to PPC International managing director Datuk Siders Sittampalam, “The questions today are, what is going to happen to the new supply coming in? How fast can the space be filled? The occupancy of office space in KL today is about 85%.”

This brought me back to a discussion with a fellow colleague just weeks ago. He said that why are developers continue to build office space when the existing office space is already said to be oversupplied. I asked him why he said so? He said there are a few office buildings which are no longer occupied. I told him that I feel that if we are always talking about survival of the fittest when we talk about business, why are we also not talking about survival of the fittest when it comes to office space? Why not let those which are competitive take office space business away from the buildings which are no longer competitive? Where the maintenance might have been bad and thus after 10 years, the building is no longer attractive? He said he disagreed but the conversation stopped.

In an article in an online news portal, it quoted Chris Boyd, executive chairman of Savills Malaysia as saying that despite Greater KL having a lot of office space it is important to note that 75 percent of these office stock is more than 16 years old and 40 percent were built between 1990 and 1999. Yes, if 1990, it meant the building is already 25 years old! Remember everyone would tell you to stop buying a condo if it’s over 20 years old? Well, there are office buildings which are older! Chris then said that “Less than 15% of the existing stock is less than five years old.”

Actually, do we now see one major reason why the newer places are still being sought after and the office rental is still increasing while some older places are finding it harder to maintain its tenant even with lower rentals? Think very objectively. Assuming you are a new multinational or you are a listed company which is growing very fast, would you want to be based in an old building? Would you not want a nicer place where it may be integrated to shopping malls or other public transport like the LRTs or the Monorail? At least within walking distance?

Office buildings build for needs of yesterday may not be suitable for today. Older lifts also break down more often and it may take major refurbishment for some older buildings to be on par with the newer ones. If the office building was managed well, it should have no issues to keep its tenant while at the same time providing very competitive rental rates. If it is not, why are we stopping the building of new ones and trying to ‘save’ these buildings? Restructuring is common in many industries and I think this applies to the office building marketplace too. Happy renting a better place for a lower price with more office choices.